MacPherson v Commissioner of Taxation by Evans B56/1998 [2000] HCATrans 80 (10 March 2000)

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Brisbane No B56 of 1998

B e t w e e n -

GRAHAM JOHN MACPHERSON

Applicant

and

COMMISSIONER OF TAXATION BY LEIGHTON DAVID EVANS

Respondent

Office of the Registry

Brisbane No B57 of 1998

B e t w e e n -

GRAHAM JOHN MACPHERSON

Applicant

and

COMMISSIONER OF TAXATION BY KEVIN MARK THOMPSON

Respondent

KIRBY J

HAYNE J

TRANSCRIPT OF PROCEEDINGS

FROM BRISBANE BY VIDEO LINK TO CANBERRA

ON FRIDAY, 10 MARCH 2000, AT 12.40 PM

Copyright in the High Court of Australia

___________________

MR J.S. DOUGLAS, QC: If the Court pleases, I appear with my learned friend, MR M.K. CONRICK, for the applicants in these two matters. (instructed by McDonald Brown Solicitors)

MR D.J.S. JACKSON, QC: If the Court pleases, I appear with my learned friend, MR D.N. ADSETT, for the respondents. (instructed by the Commonwealth Director of Public Prosecutions)

KIRBY J: Yes.

MR DOUGLAS: Your Honours, this decision of the Court of Appeal is one of general effect under the Taxation Administration Act. It will effect decisions to prosecute for taxation offences across the country. The principle for which it stands is that if the Commissioner can establish that a taxpayer has engaged in some impropriety in his or her tax affairs, unconnected with, but possibly related to, the offences charged, then he can prosecute with immunity so far as costs are concerned.

HAYNE J: Well does it stand for that or does it simply stand for the fact that this is the way the Court of Appeal, on re-exercising the discretion, chose to dispose of costs in the circumstances of this case?

MR DOUGLAS: Well, we submit it stands for the former, principally because the court, in our submission, misinterpreted the reasons of this Court's decision in

Latoudis v Casey and were wrong in doing so and in being wrong and in doing so, and not being corrected, will have general effect beyond just the facts of this case.

Getting back to what I was saying about the general effect on taxation administration, it allows the Commissioner, in effect, to have a free kick at a taxpayer by prosecuting, an advantage that he would not obtain in civil proceedings to recover any tax allegedly due and something that the magistrate in these proceedings apprehended to be their purpose, the recovery of tax. You can see that in the application book at page 44. Ancillary to that argument we submit that the decision is inconsistent with Latoudis v Casey. Justice McPherson, incidentally, appeared to misinterpret the progress of the constitutional arguments in the courts below that eventually succeeded in the Court of Appeal, but at pages 110 to 115 of the application book analysed some of the passages from Latoudis v Casey and particular passages from the judgments of Chief Justice Mason and Justices McHugh and Toohey, where their Honours set out specific examples of circumstances in which a successful defendant could be deprived of costs.

We do not submit that they are the only possible examples, but what we do submit is that mere improper behaviour, unconnected with the charge, is not enough to permit the discretion to be exercised against a successful defendant, and you can, I suppose, best illustrate how there is a discrepancy, which we say is erroneous, between this Court of Appeal decision and the decision in Latoudis v Casey, by first of all going to Chief Justice Mason's judgment at page 544 of Latoudis v Casey at about point 8 of the page after his Honour has expressed some of his own views as to why the discretion had been improperly exercised below and compare what he says in the last part of his judgment, where he says:

The magistrate based his decision in this respect solely on the defendant's participation in the transaction which gave rise to the offence alleged. For the reasons given by McHugh J., the magistrate erred as well in this respect and the appeal should be allowed.

Now, we submit that where Justice McPherson says at page 113 at about point 6 of the application book:

one circumstance in which such a course -

refusal of costs -

may be justified is where there has been misconduct on the part of the defendant that is sufficiently connected with the subject of the charge.

And he then goes on to elaborate that at page 114 about point 8 of the page, where his Honour says:

What, however, I understand the magistrate to have been saying here, and in his other remarks on the subject, is that the appellant and the McCurrys had so disarranged their affairs that it would not be, and was not, possible to tell whether any and which of the payments made by the McCurrys or their company Simuse Pty Ltd to or on behalf of the appellant were, properly speaking, income and taxable as such in the hands of the appellant, or fringe benefits on which tax was payable by the employer company. It was because of that difficulty in the proof against him, for the creation of which the appellant himself was at least partly responsible that the complaints were ultimately dismissed.

Now we say that, in those passages, his Honour really expressed a view as to why costs should not be awarded that is inconsistent, in particular, with that expression of principle of the Chief Justice in Latoudis v Casey. It is also a principle that was expressed clearly before in one of the leading decisions in the area, the decision of the Privy Council in Donald Campbell & Co Ltd v Pollak (1927) AC 732. The relevant passages are pages 811 to 812 and this really is the locus classicus of decisions in this area, where Viscount Cave said, for example, on page 812:

if - to put a hypothesis which in our Courts would never in fact be realized - a judge were to refuse to give a party his costs on the ground of some misconduct wholly unconnected with the cause of action or of some prejudice.....a Court of Appeal might well feel itself compelled to intervene. But when a judge, deliberately intending to exercise his discretionary powers, has acted on facts connected with or leading up to the litigation which have been proved before him or which he has himself observed during the progress of the case, then it seems to me that a Court of Appeal, although it may deem his reasons insufficient and may disagree with his conclusion, is prohibited by the statute from entertaining an appeal from it.

We say that this falls into the first category of misconduct wholly unconnected with the charge in this case, the cause of action, and it is not conduct which should have been taken into account in accessing whether or not the successful defendant should have been deprived of his costs, and if I can show how that decision of Donald Campbell still applies in this area, and in a particularly apt context of misconduct in respect of tax affairs, can I simply refer you to the decision of Justice Wilcox in Petera Pty Ltd v EAJ Pty Ltd & Others (1985) 7 FCR, where the relevant discussion is at the foot of page 380 where his Honour relied upon Donald Campbell & Co Ltd v Pollak and said in respect of respondents whose taxation affairs were handled improperly:

The conduct of the respondents in relation to their taxation commitments was not misconduct in the action. That conduct is not shown to have had any effect upon the applicant's decision to bring or to maintain the proceedings.

Now, we elaborate in paragraphs 17 to 20 of our written outline why we say the behaviour criticised by the Court of Appeal was not conduct connected with the charge, and I do not want to repeat what is set out there. Can I also say that the result below was unjust. The Commissioner led the magistrate and the District Court judge into error on the constitutional point, which was the main reason for the appeal - the inconsistency between the - - -

HAYNE J: But the Court of Appeal then re-exercised the discretion afresh, did it not?

MR DOUGLAS: It did so, yes.

HAYNE J: And thus, were leave to be granted the appeal would be an appeal against the exercise by the Court of Appeal of its discretion, no regard being necessary or appropriate to what had moved the magistrate?

MR DOUGLAS: True, but that fails to take into account that the principle argument, both before the District Court judge and before the Court of Appeal, related to the constitutional situation between the Taxation Administration Act provision and the Queensland Justices Act provision.

HAYNE J: But the point that moved the Court of Appeal, as I understood it, was that there was a state of what was described as "common knowledge" between the appellant and the McCurrys about the obscurity of the arrangements, which was an intended result by both the McCurrys and the appellant.

MR DOUGLAS: That was based on a finding by the magistrate, yes.

HAYNE J: Yes, and that that was the conduct fastened on by the Court of Appeal.

MR DOUGLAS: And we say that that was not conduct properly connected with the charge to enable them to exercise their discretion in the way they did.

HAYNE J: What do you understand then by "properly connected with the charge"?

MR DOUGLAS: There are a number of possible circumstances in which it can arise. They are really best illustrated by the examples given by Justices McHugh and Toohey and the Chief Justice in Latoudis v Casey, in the passages that are set out between pages 110 and 112 in particular, and page 113 of the application book.

HAYNE J: Including the defendant unreasonably inducing the informant to think that a charge could be successfully brought?

MR DOUGLAS: Yes, but that is not what has happened here factually. Here full disclosure was made by the respondent and he was charged with failing to disclose income. The defence was, it is not income, it is fringe benefits, and the tax on that is payable by the employer. Now the information relevant to that was made available earlier to the Commissioner and the charge simply failed because it was clear that there was a real doubt as to the characterisation of the money in the hands of that taxpayer.

HAYNE J: Because the state of the evidence between the McCurrys and the appellant's understanding or assertions, was that one could not say beyond reasonable doubt which character this money bore.

MR DOUGLAS: Well, in those circumstances, what can be done and what was done was that the applicant was charged with fraudulent false accounting before the District Court in other proceedings and the Commissioner failed on these ones.

HAYNE J: But the Court of Appeal seems to have acted on the basis that this was the intended and designed outcome achieved by the present applicant and the McCurrys, one which should be visited with an order for costs.

MR DOUGLAS: Well, with respect, that should not be right, because it then simply penalises a successful defendant for having beaten a charge. What the Commissioner has to do in circumstances like that is to charge the right offence, which he did in other proceedings. So, in our submission, it is quite wrong to look at this ancillary behaviour, unassociated with the charge, to say that is a reason why costs should not be awarded. One might as well say that you have blue eyes and do not get costs, and that is the principle - - -

KIRBY J: It is not quite as remote as that.

MR DOUGLAS: No, it is not, but that is the principle that is of concern.

KIRBY J: But effectively it gets back to what Justice Hayne said at the outset; you are basically trying, in a matter of costs, where there is now no dispute as to the applicable statute, that having been an earlier dispute which was potentially of some importance, but you have succeeded on that; you are really bringing it up here to ask us to examine the exercise of discretion by the Court of Appeal and saying that they have taken into account an irrelevant consideration. You would know as well as we do that the Court would rarely get into questions of costs and certainly where it is really just a matter of whether, in a particular case, an irrelevant consideration has been taken into account.

MR DOUGLAS: Of course, that is so, your Honour, but the Court did examine questions of costs in Latoudis v Casey and, in our submission, this case significantly - - -

KIRBY J: But that at least arguably was a matter which was of general significance, and similarly with Oshlack, but this matter is just very particular facts in a very particular case, where the major legal battle was fought and you won it; you just happened to lose the exercise of the discretion. I can understand you are upset about it but, from a point of view of legal principle, it is quite a confined question.

MR DOUGLAS: Except that it does derogate from Latoudis v Casey, in our submission, and it does have wide general effect, because there are many taxation prosecutions brought throughout the country and it will have effect on those, one can be sure of that. In that context we submit that it is a dangerous precedent, contrary to existing law, unjust in these particular circumstances, and could have significant effects on the administration of the taxation system across the country. Although your Honour Justice Hayne points out to me that it is a re-exercise of discretion exercised by the Court of Appeal that we are inviting the High Court to embark on, it is also relevant that below that a District Court judge would clearly have given the applicant his costs, if he had not thought section 158A of the Queensland Justices Act applied. You can see that by looking at pages 66 and 76 to 78 of the application book. There were submissions even made below, before the magistrate by the prosecutor, that if costs were to be allowed, allow two days costs, against the background of a submission that costs should not be allowed because of section 158A. So really, in our submission, this is - - -

KIRBY J: Could I just ask you on that point - there was an offer at some earlier stage, was there not, to pay part of the costs or part of the argument, as it were conceded that part of the costs should be paid; am I misunderstanding that?

MR DOUGLAS: Yes, it was not a concession; I think the prosecutor said, if any costs were to be paid - and there was argument against costs - only allow two days.

KIRBY J: I see, so there is no inconsistency between the order and that concession?

MR DOUGLAS: No, there is not, but, of course, that was based on the since corrected error that section 158A of the Queensland Act applied.

KIRBY J: Yes.

MR DOUGLAS: So, apart from the questions of general interest, which we say or submit do exist, there is that injustice in this particular case as well. They are our submissions, if the Court please. Any reply will be given by Mr Conrick.

KIRBY J: Yes. Could you help us, Mr Jackson. It is suggested that this decision will have wide ramifications for cases involving the exercise of the discretion for costs; do you accept that?

MR JACKSON: We would submit, not, your Honour, and the language of the Court of Appeal is carefully couched so that it should not do so, which your Honours can see from page 113 of the application book. There are, in the passage which there appears in the reasons of Justice McPherson, a number of qualifications that indicate the case is an exceptional one.

HAYNE J: Well, he says at line 34 that depriving the successful defendant "will not be common" - the occasion for refusal "will not be common".

MR JACKSON: Quite, your Honour, that is the starting proposition. The next step is that the conduct may not - not must - justify a refusal, and the third step is that conduct has to be sufficiently connected, which is the point that our learned friends directed their submissions to, and we would submit here, that the connection is precisely that which your Honour Justice Hayne articulated when dealing with the matter with our learned friends. This is an unusual case, because it was a case where there was an express finding of dishonesty, and that was not Latoudis; Latoudis was a case where the defendant had been successful on three charges - only one of them actually went to final decision - and in having succeeded in the case, there was necessarily a negation of any finding of dishonesty. Here there was a finding of express dishonesty and, closely connected with the subject matter, in fact, to put it in slightly different language, as your Honour Justice Hayne said, it was part of the dishonesty that caused the difficulty in being able to characterise the conduct as being that which is appropriate to the offence charged or something else.

KIRBY J: It is always a pleasure to here you, Mr Jackson, but we do not want to hear you any more.

MR JACKSON: Thank you, your Honour.

KIRBY J: Is there any reply, Mr Conrick?

MR CONRICK: No, your Honour.

KIRBY J: Thank you.

In this application the respondent does not now contest the legislation which was applicable to the exercise of the costs discretion. Were this Court to grant special leave, it would effectively be involved in a review of the exercise by the Court of Appeal of the Supreme Court of Queensland of its discretion to order costs under the legislation which is agreed to apply. We do not accept that the exercise of the discretion in the facts of this case would, or should, have consequences for other cases. This case was, in many ways, exceptional. The question presented is not one that attracts a grant of special leave which is therefore refused. The applicant must pay the respondents' costs but there should be one order as to costs.

AT 1.02 PM THE MATTER WAS CONCLUDED